Small enterprises are always on axe head areas because of their small turnover. These companies run on small figures hence maintaining a cash flow that is regular is ideal. The terms that these companies sometimes have with their clients are generally for a long term. This means that the company will not be paid immediately the full amount. Usually only small token amount is only paid by the customer. This can hinder business as this blocked money can be necessary later for the business growth. Now since the money is held somewhere the business cannot move forward. To help all enterprises at such conditions there is a method called asset based lending.

What is asset based lending:

This is meant for small scale companies to ensure a good cash flow continuously. This is financing provided by the firm based on what asset you already have in business. This is very different from the conventional methods of getting money like taking a loan or mortgaging or selling some of your assets. In this case the invoice or the purchase order that you receive from the transaction between you and the client can also be considered an asset. Which means the invoice can be used for loaning money. The other methods of asset based financing are purchase order financing and inventory factoring. Here invoice factoring is detailed.

Invoice factoring:

This is an easy method to finance your business when you are having cash flow constraints. This means you can be losing business when you have a cash crunch. The usual difficulty and paper work for traditional methods of loaning money is not faced in this method. You can be accelerating payment through invoice factoring. The options available are of two types: recourse and non recourse factoring. The recourse method involves you to sell the unpaid invoice between you and the client to the factoring firm. The factoring firm pays upfront the money owed by the customer to you. The factoring firm then regains that money from the customer. In this the factoring fee is lower because the firm does not pay you a large portion of the invoice. The liability if the customer does not pay is on you. In non recourse factoring the liability of the customer payment is taken up by the firm. Hence a big amount is paid out to you against the invoice but the fee levied will be higher.